Best Ichimoku Strategy for Quick Profits
The best Ichimoku strategy is a technical indicator system used to assess the markets. This unique strategy provides trading signals of a different quality. Forex trading involves substantial risk of loss. Although, with Ichimoku cloud trading, those losses are contained and kept small.
The Ichimoku system is a Japanese charting method and a technical analysis method. Our team at Trading Strategy Guides mastered the method over a long period of time.
The Ichimoku indicator was published in 1969 by a reporter, Ichimoku Kinkou Hyo, in Japan. This candlestick trading technique has stood the test of time.
The name Ichimoku tells a lot about the trading system, or at least it gives a description of the system.
Ichimoku = “One look, glance”.
Kinkou = “Balance, equilibrium”.
Hyo = “Chart, Graph".
Ichimoku cloud trading attempts to identify a probable direction of price. It helps the trader determine the most suitable time to enter and exit the market by providing you with the trend direction. It gives you reliable support and resistance levels and the strength of these market signals.
Now….
Before we delve deeper into the Ichimoku Cloud strategy, let’s look at the indicators needed to successfully trade the strategy.
The most popular Forex trading platforms use the Ichimoku Cloud indicator. The Ichimoku indicator paints all the components needed to help visualize the price action better. The Ichimoku cloud is one of the most comprehensive technical indicators in modern use. Unsurprisingly, it has quickly become the "go-to" indicator for forex traders around the world.
In the Ichimoku cloud section, we are going to give you an in-depth overview of the Ichimoku components.
So, before moving forward, let’s define all the Ichimoku Cloud components. We will review how to correctly interpret the trade signals generated by this technical indicator.
Ichimoku Cloud Explained
The Ichimoku Hinko Hyo is a momentum indicator used to recognize the direction of the trend. It can also define accurate support and resistance levels. The Ichimoku Cloud indicator consists of five main components that provide you with reliable trade signals:
- Tenkan-Sen line, also called the Conversion Line, represents the midpoint of the last 9 candlesticks. It’s calculated with the following Ichimoku formula: [(9-period high + 9-period low)/2].
- Kijun-Sen line, also called the Base Line, represents the midpoint of the last 26 candlesticks. It’s calculated with the following formula: [(26-period high + 26-period low)/2].
- Chiou Span, also called the Lagging Span, lags behind the price (as the name suggests). The Lagging Span is plotted 26 periods back.
- Senkou Span A, also called the Leading Span A, represents one of the two Cloud boundaries and it’s the midpoint between the Conversion Line and the Base Line: [(Conversion Line + Base Line)/2]. This value is plotted 26 periods into the future and it’s the faster Cloud boundary.
- Senkou Span B, or the Leading Span B, represents the second Cloud boundaries and it’s the midpoint of the last 52 price bars: [(52-period high + 52-period low)/2]. This value is plotted 52 periods into the future and it’s the slower Cloud boundary.
- Chikou Span, represents the closing price and is plotted 26 days back.
While the Ichimoku Cloud indicator involves multiple (five) different lines, reading the graph is actually very easy. Using the trend lines mentioned above, you will then need to determine whether Leading Span A or Leading Span B is currently higher.
Once Leading Span A and Leading Span B have been identified, the “cloud” component of this graph will be shaded in. When Leading Span B is above Leading Span A, this indicates to traders that price momentum is currently increasing. When this is the case, the graph will be shaded green.
On the other hand, when Leading Span A is below Leading Span B, the underlying asset is likely moving in a negative direction. When this happens, the cloud will be shaded red. Despite the graph’s complications, simply looking at the colors of the cloud can help you determine the direction of the market.
Here are some basic interpretations of the Ichimoku charts:
- When the price is above the Cloud, we’re in a bullish trend.
- When the price is below the Cloud, we’re in a bearish trend.
- When the price is in the middle of the cloud the trend is consolidating or ranging.
Furthermore, the Ichimoku charting technique provides bullish and bearish signals of various strengths.
When the Tenkan crosses Kijun from below, it is considered a bullish signal. When the Taken crosses the Kijun from above, it is considered a bearish signal. The Kijun line is shown as the red line above.
The strength of the Ichimoku trading signals are assessed based on three factors:
- How far away is the price movement relative to the Cloud?
- How far away is the Chiou Span relative to the Cloud?
- How far away is the Cross-over relative to the Cloud?
Because many of the lines on the Ichimoku Cloud chart are created using averages, the chart is often compared to a simple moving average chart. However, Ichimoku is more dynamic than a simple moving average chart as it's designed to help detect changes in support and resistance.
The relationship between Leading Span A and Leading Span B will indicate whether there is a strong downtrend or uptrend. Pay attention to both the color (green for bullish, red for bearish) and the size of the cloud. When the “cloud” between these lines is small, then the trend will not be very strong.
The Ichimoku Cloud is useful for day traders and others who need to make quick decisions. The cloud is often paired with other technical indicators, such as the Relative Strength Index, in order for traders to get a complete picture of resistance and support. Many traders will also look out for crossovers in order to determine when trends have reversed.
Ichimoku cloud trading requires a lot of self-discipline. This is because you have to wait for the best trade signals. We’re going to use the default settings of the Ichimoku Cloud system.
Now, let's move one step forward and learn how to make money by applying the Ichimoku trading rules.
Note* Moving forward, we’re not going to delete the Lagging Span moving average from our charts. This is because we don’t base our trade decision on it since it’s lagging the price.
The Best Ichimoku Strategy – Buy Rules
The Ichimoku Cloud system is designed to keep traders on the right side of the market. Our trading rules will help you follow the trend for as long as possible. At least until it’s clear that a reversal is occurring. The Ichimoku system suits swing trading best. This is because it maximizes profits while minimizing the risk involved in trading. Here is how to identify the right swing to boost your profit.
The Ichimoku Kinko Hyo best time frame is the one that fits you best. As we don’t have a preferred time frame.
This swing trading strategy will teach you how to ride the trend right from the beginning. You will also learn how to capture as many profits as possible.
Ichimoku Cloud Trading: Step by Step
Step #1 Wait for the Price to Break and close above the Ichimoku Cloud.
Ichimoku cloud trading requires the price to trade above the Cloud. This is because it's a bullish signal and potentially the beginning of a new up-trend.
The cloud is built to highlight support and resistance levels. It highlights several layers deep because support and resistance is not a single line drawn in the sand. It is several layers deep.
So, when we break above or below the Ichimoku Cloud, it signals a deep shift in the market sentiment.
A high probability trade setup requires more layers of confluence before pulling the trigger.
This brings us to our next requirement for a high probability trade setup.
Step #2 Wait for the Crossover: The Conversion Line needs to break above the Base Line.
The price breakout above the Cloud needs to be followed by the crossover of the Conversion Line above the Base Line. Once these two conditions are fulfilled, we can look to enter a trade.
The Ichimoku Cloud indicator is a very complex technical indicator. The indicator is even used as a moving average crossover strategy.
Now, we’re going to lay down a very simple entry technique for the Ichimoku Kinko Hyo trading system.
See below….
Step #3 Buy after the crossover at the opening of the next candle.
Ideally, any long trades using the Ichimoku strategy are taken when the price is trading above the Cloud. Our team at the TSG website has adopted a more conservative approach. We added an extra factor of confluence before pulling the trigger on a trade.
So, after the crossover, we buy at the opening of the next candle.
(Notice the strong buy signal in the graph below.)
The next important thing we need to establish is where to place our protective stop loss.
See below…
Step #4 Place protective stop loss below the breakout candle.
The ideal location to hide our protective stop loss is below the low of the breakout candle. This trading technique accomplishes two major things. Here is an example of a master candle setup.
First, it’s significantly lowering the risk of losing big money. Second, it helps us trade with the market order flow.
Since this is a swing trading strategy, we’re looking to capture as much as possible from this presumably new trend. We’ll be looking to trail our stop loss level below the Cloud or exit the position once a new crossover happens in the opposite direction.
The next logical thing we need to establish for the Ichimoku trading system is where to take profits.
See below…
Step #5 Take Profit when the Conversion Line crosses below the Base Line.
We only need one simple condition to be satisfied with our take profit strategy.
When the conversion line crosses below the baseline we want to take profits and exit our trade.
Alternatively, you can wait until the price breaks below the Cloud, but this means risking to lose some parts of your profits. In order to gain more, sometimes you have to be willing to lose some.
Note** the above was an example of a BUY trade using the advanced Ichimoku trading strategies. Use the same rules for a SELL trade – but in reverse. In the figure below, you can see an actual SELL trade example.
(See the strong sell signal in the conversion line.)
Conclusion: Ichimoku Cloud Explained
The best Ichimoku strategy is slightly different than probably anything you’re used to when it comes down to technical analysis. If you’re having a very difficult time finding true support and resistance, please apply the Ichimoku cloud trading techniques highlighted in this course.
We hope that by now you’re convinced that the Ichimoku Cloud system is a good way of identifying the trends and profit from trading any market on any time frame. It can easily capture 80% of the trend if you follow the rules in the Ichimoku Cloud explained section.
Thank you for reading!
Please leave a comment below if you have any questions about Best Ichimoku Strategy!
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Here is a video on Ichimoku taught by Tim Black!
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With over 50+ years of combined trading experience, Trading Strategy Guides offers trading guides and resources to educate traders in all walks of life and motivations. We specialize in teaching traders of all skill levels how to trade stocks, options, forex, cryptocurrencies, commodities, and more. We provide content for over 100,000+ active followers and over 2,500+ members. Our mission is to address the lack of good information for market traders and to simplify trading education by giving readers a detailed plan with step-by-step rules to follow.
Best
Thank you!
Nice way to explain
Thank you so much!
I have explained the indicator very clearly. thank you.
You're welcome!
This is well explained. Thanks for throwing more light on this wonderful indicator
Glad it helped you with understanding the indicator more!
very good indeed.. i'm looking forward to apply it and start making profit by using ichimoku
You wrote "When Leading Span B is above Leading Span A, this indicates to traders that price momentum is currently increasing" . Please take a look at this statement. Should it not be the other way around, that is Leading Span A above B indicates increased momentum? Your strategy guides have always been very informative and educative and have been very helpful. I don't see where to subscribe. Kindly add me to your subscription list. Thanks a lot
Hang on you mean to tell me that Ichimoku Kinkou Hyo is both the reports name, AND means one look, balance, chart? What are the odds?
You made it look so easy to win in forex trading. Thanks
Glad it helped!
Wow... Awesome
Please can we use it on multiple time frame
Long postion: Are we saying then that a cross-over of the conversion-line and the base-line after the price has broken out from the Cloud is a stonger signal than one where the cross-over took place before the price break-out?
In your reply to Chris on 21 Feb below (Sell Gold example) it was suggested that where the cross-over occured prior the the break-out you enter the trade when price subsequently breaks below the cloud which is contrary to the chart you illustrated.
Excellent teaching. Excellent strategy. Thanks for the teaching. Will be learning more from you on your website and u-tube channel.
VERY MUCH USEFUL AND NICE EXPLANATION OF THE STRATEGY. THANK YOU
First let me say this is an excellent and great explanation of the IC strategy. Question...am I cross-eyed from reading too long on my phone or do you have an error in the below paragraph? Shouldn't the second sentence read...When leading A is above leading Span B.....?
Once Leading Span A and Leading Span B have been identified, the “cloud” component of this graph will be shaded in. When Leading Span B is above Leading Span A, this indicates to traders that price momentum is currently increasing. When this is the case, the graph will be shaded green.
If I am wrong I apologise for wasting your time. I am new to trading but trying to soak up as much information as I can.
I think you are right Earl. Confused me for a while!
Yaa confused me also a lot
GREAT! Breakdown of Basic Ichimoku Cloud readings.
Best indicator of i have ever seen
Hi, thank you so much for your kindly explaination for this cloud strategy, I more understand it after I read your article than other's article.
Please, I have a question, if we use this strategy on hourly data, should we wait for the same pattern occur on 4 hour data too in order to make an entry point? Or we just look for the entry point pattern at hourly data only?
Thank you for your explaination.
Hey, i really appreciate everything you guys have done and all the time and effort you put in to helping us. I can’t say thank you enough for putting all of this together. My only question is, what currency pairs work best with this strategy?
Hi, Thanks a lot for this strategy. it's very well explained but I have a small doubt about which timeframe data is best to use for this strategy like Seconds data or Hourly data or Daily data. I implementing this strategy on Hourly data but do I need to take seconds data for this Step #3 Buy after the crossover at the opening of the next candle.
This is best on the hourly in our testing.
I found the longer the timeframe the more accurate the entry. But if you are using the 1H timeframe and above, you will need a lot of patience and don't enter trades blindly or rush into it. I personally use 15m and it works great also.
What do you use as your stop-loss for the lower time frame trades? (the guide emphasizes cloud breakout, but most intraday trades are already well above the cloud breakout). Thanks!
We recommend using the 1 hour strategy.
Find more best strategies here: https://tradingstrategyguides.com/best-trading-strategy/
This is an excellent strategy and compiles a lot of data into 1 indicator. That's great! I have a question about buying. If the crossover of Conventional Line above the Base Line happens below the Ichimoku Cloud and price is still below the Ichimoku Cloud, when would you buy? Would you buy as soon as price breaks above the Ichimoku Cloud, so long as the Conventional Line stays above the Base Line? Thanks so much for the insight!
Hey! first off thanks for your kind words. It means alot to see that people like you are loving this content. You would buy when price has broke above, like you said.
Ichimoku trading strategy has everything you need to trade successfully. From identifying support and resistance levels to clearly identifying trends irrespective of the timeframe. I request you to send a PDF copy for detailed and internalization.
Great! We will considering making this into a PDF. Thanks!
Thank you for explaining this awesome strategy, but i have 1 question. In the sell example, the crossover already took place before or at the same time the candle broke trough the cloud, but you did not take the trade and waited for the next crossover. when i understand this right, then i have to wait for the crossover, after the candle broke trough the cloud, right?
Yes that is correct! And thanks for the comment, glad you enjoyed the content.
Can you explain why in the sell example you have to wait? The candle broke and closed below the cloud. The baseline was already over the conversion line. You are proposing waiting and letting the Conversion line cross over the baseline and then the baseline cross back over the conversion line. Has it been your experience that when the candle breaks the cloud and the baseline is already over the conversion line there will be a retrace? This allows the conversion line and the baseline swap back and forth? Please explain I love this system and want to learn.
I think that's correct, they are trying to avoid the case of a STRONG retrace where it would swing back and easily hit any SL. You can enter the trade if you wish but I think their strategy of waiting will filter out a lot of false signal in the long run. Hope this helps.